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Friday, February 26, 2010

Internet Sales Tax

The Northern California Retail Booksellers Association is an affiliate member of Small Business California. I received a call from Assemblywoman Nancy Skinners office asking us to support legislation supporting brick and mortar stores to level the playing field on the sales tax. I asked Hut Landon the ED of the Booksellers Associationto give me his organizations position. Please note there are many small businesss impacted by this and not just booksellers.

The argument against this is that Amazon and Overstock will eliminate their affiliates in California.. Please note this provision has been passed in I believe 5 states and Amazon has eliminated affiliates in most states however they were very small states except New York. New York, I think has more sales than all the other states combined.

There are several reasons to support legislative efforts to compel Amazon.com, Overstock.com and other large out-of-state retailers to collect sales tax on sales made to California customers.

1. Let's start with the law. Consumers are legally obligated to pay sales tax on taxable items they purchase, whether from an independent business, a chain store, or Amazon. If you don't pay it at the time of purchase, you're still obligated to do so. It's called use tax. Look at your state tax form -- there's a place to record the amount you owe. No one does it, of course, but the tax is still owed. So this is not a new tax; we're only talking about how it's collected.

2. The law, part two. The California state tax code states that retailers with "nexus" in the state must collect sales tax. Nexus is most commonly defined as physical presence, so if you buy a pair of shoes on Macys.com, sales tax will be collected because Macy's has a physical presence in the state.

But the tax code also says that out-of-state sellers without a physical presence in the state have nexus if they have affiliates, or sales agents, operating on their behalf. In Amazon's case, they have literally thousands of affiliates driving traffic to its site in exchange for a commission on any sales that occur. For many such sales agents, Amazon provides weekly specials that can be emailed out as a further inducement to shop.

3. The consequences. Let's take any retail business and tell them that they now have a major competitor with deep pockets and an aggressive discount pricing model. That competitor also enjoys a nearly 10% price advantage because it does not collect sales tax. Unfortunately, this is not a hypothetical example. Amazon and Overstock alone are selling electronics, appliances, clothing, shoes, furniture, sporting goods, hardware, groceries, toys, auto parts, garden supplies, books, music, etc. If you or any business you know is selling anything on this list, they are up against competitors who have a huge competitive edge right out of the gate.

Now, if you don't care about small business and what they add to a neighborhood or a community, or the jobs they provide and create, you can stop reading. But small business are closing right and left because they can't compete with these out-of-state behemoths, especially in tough economic times. And the ones that are still around are having to cut back on the number of employees and benefits they provide, which only adds to the state's economic woes.

4. Fairness. These small merchants aren't asking for a handout or for special treatment, and many of them have successfully competed against chain stores for years. But it's tough to compete when they're at a 10% disadvantage for every single sale. Hardly a level playing field.

5. Why you should care. In addition to collecting sales tax for the state, these local businesses support local causes and charities, and are integral to vibrant, diverse shopping neighborhoods. And if that doesn't move you, consider this: the state Board of Equalization has stated that sales tax revenue lost to out-of-state e-tailers amounts to over $150 million annually. That's money that could be used to help schools, hire more police, retain essential health services, keep state parks open...you get the idea.

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Small Business California is a proactive, non-partisan business advocate whose only agenda is the well being of California’s 3.2 million small businesses. Working for all small businesses for a better business environment, SB-Cal is responsive to the needs of small business owners.
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